Teaching kids basic financial skills is extremely important, but many parents feel overwhelmed when it comes to teaching their kids about finance.
A study from Commonwealth Bank earlier this year showed that 60% of parents feel their child’s understanding of the value of money is less than their own when they were younger. But only 1 in 5 parents have taken to teaching their kids financial skills that revolve around cashless transactions.
That’s where junior and youth banking comes in. This report analyses some of the biggest trends occurring in junior and youth banking right now, to equip children as best as possible for the world ahead of them.
Canstar has identified 3 major trends that are affecting the youth banking space currently, and could have a knock-on effect on banking in general:
- Interest rates on junior and youth bank accounts continue to be higher than adult rates.
- Australian teens are struggling with financial literacy
- ATM use is falling among the younger generations
Youth banking vs adult banking – interest rates compared
The market for children’s bank accounts is more competitive now than ever before, as parents are starting to realise the potential in teaching their children about saving. There are typically a few key differences between a youth bank account and an adult bank account, mainly designed to encourage kids to enjoy saving money and help build a solid foundation of money management:
- Higher interest rates
- No account-keeping fees and lower fees in general
- Low minimum deposit requirements
- The availability of educational tools
Interest rates on youth and children’s savings accounts vs adults’ savings accounts
Kids’ savings accounts generally offer reasonable and competitive interest rates, but they can often earn a higher bonus interest rate if they make regular deposits to their account.
For kids who earn pocket money or a small income from chores or other jobs, these kids savings accounts can encourage good savings habits by rewarding them with a higher interest rate if they keep adding to their account.
Canstar has found that there are significant differences between the interest rates available on children’s and student savings accounts compared to adult savings accounts.
Base rates – youth vs adult bank accounts
|Minimum rate||Average rate||MaximCum rate|
Balance $500 – $1000
$500 – $1000
Total rates – youth vs adult bank accounts
|Minimum rate||Average rate||Maximum rate|
Balance $500 – $1000
$500 – $1000
As you can see, in the current low interest environment, there is a large difference between the rates on offer in kids’ savings accounts; whereas the rates offered on adult bank accounts are far more consistent.
With adult rates, you can see that the maximum total rate available on the market is 3.05%, which is much less than the biggest bonus rate offered in the youth banking space. This maximum rate is only 1.67% higher than the market average, and there isn’t much of a difference between the maximum bonus rate and maximum base rate – only 0.30%, in fact.
There is a lot more variation in youth banking rates. Without making regular deposits, the base rate reaches 0% (just as it does with adult accounts), which obviously isn’t ideal. But with some smart and disciplined savings practices, the rate your child can earn on their bank account in Australia can be as high as 5.15%, which is much higher than the industry average of 1.90%. This average interest rate of 1.90% has decreased slightly from 2.13% at this time last year.
Since there is so much more variation in youth banking rates, you’ll have to look a little bit harder to find the ideal one for your son or daughter, or for yourself if you’re one of the financially savvy kids reading this.
Fortunately, Canstar compares both kids and adult bank accounts, and you can compare them using the links below.
Fees on youth and children’s bank accounts vs adults’ bank accounts
In most cases, banks will make it as easy as possible for young savers by not subjecting them to excessive fees and charges on their account. Common fees in adult bank accounts that are not usually charged on children’s bank accounts include:
- Monthly account-keeping fees
- Withdrawal fees
- Branch deposit fees
- Electronic transaction fees
- Eftpos transaction fees
Of the junior and youth banking products that Canstar rates, our research found that 24 out of 149 eligible youth savings accounts charge an Eftpos transaction fee, 56 of them charge a branch withdrawal fee, and just 13 charge an account-keeping fee.
As you can see, much less than half of the accounts rated charge these sorts of fees. On average, Canstar data shows that the current fees being charged on youth and adult bank accounts are as follows:
Eftpos transaction fees
|Junior savings account||
|Youth savings account||$0.00||$3.00||$0.81|
|Adult savings account||$0.00||$3.00||$0.75|
Branch withdrawal fee
|Junior savings account||$0.00||$20.00||$1.05|
|Youth savings account||$0.00||$25.00||$2.50|
|Adult savings account||$0.00||$25.00||$2.28|
|Junior savings account||
|Youth savings account||$0.00||$6.00||$0.45|
|Adult savings account||$0.00||$35.00||$0.59|
Minimum deposit requirements on youth savings accounts vs adults
To be eligible for the high bonus interest rates and low fees, there are generally some rules kids have to follow. To achieve the full interest rate, there is usually a minimum deposit required each month.
For example, a hypothetical children’s savings account with a bonus interest rate of 2.75% p.a. might require the account holder to deposit at least $20 each month, making no more than one withdrawal during this time. If this requirement is not met, then the account would revert to the base interest rate of 1.40% p.a.
Not meeting the minimum deposit requirement can result in all interest earned in that month being lost, for both children and adult savings accounts.
According to Canstar’s research, all children’s bank accounts and youth bank accounts require some form of minimum deposit, with the majority of them having to be made monthly. Our data shows that the smallest minimum deposit required is just $1, while the highest is $1,000.
However, 2/3 of kids savings accounts require deposits in the range of $10-$20, while a significant portion of rest only need a deposit of $1 to meet the conditional bonus interest rate. In comparison, the average monthly deposit an adult savings account requires is around $136.
Kids can still get access to the base interest rate on the account by depositing less than the specified amount, and you can use this information to look for an account that requires a smaller than average deposit. You will earn more interest by meeting these requirements however, and teaching your kids how to set up automatic payments in online banking is a great way to stay on track.
Here at Canstar, we research several aspects of children’s bank accounts to help you find the right one:
- School Banking: Programs run by financial institutions in schools, to help your Under 12s learn how to save money.
- Junior Banking: Kids’ bank accounts designed for children and tweens up to 12 years old (Under 12s).
- Youth Banking: Student bank accounts designed for teens or Under 18s.
- Term Deposits: Children may be eligible to open a term deposit if their parent opens the account with them.
Financial literacy in Australian teens declining
A new report by the Organisation for Economic Co-operation and Development (OECD) has revealed some interesting insights into the financial literacy of young people in Australia.
This report by OECD, labelled the OECD PISA financial literacy assessment of students, shows mixed results for finance knowledge among young Australians.
Financial literacy simply refers to how much knowledge and understanding people have about financial needs, such as budgeting, savings, bank accounts, and responsible use of credit.
According to the report, the financial literacy of Australian teenagers has declined over the past few years. Around 1 in 5 of 15-year-olds in Australia do not have basic financial literacy, a number which has gotten larger over the years. Students are doing worse in this area than they have been previously, particularly when it comes to reading payslips and detecting financial scams.
The study found that girls performed much better on average than boys in financial literacy. Understandably, students from low socio-economic backgrounds were the most likely to struggle with financial concepts, scoring on average 97 points below non-Indigenous students from a higher socio-economic background.
To counter this, the report suggests making more specialised financial literacy programs available in schools, and tailoring these programs based on the needs of the students.
— MoneySmartTeam (@MoneySmartTeam) May 25, 2017
Global financial literacy for teens
In more positive news, Aussie teens have beaten the global average for financial literacy, ranking sixth in this area in an international study of 15 countries. Australian students’ average score of 504 was slightly higher than the OECD average of 489, and is enough to place it higher than the likes of the USA, Italy, and Spain.
Among the participating OECD countries, 22% of students are ‘low performers’, while only 12% are ‘high performers’ on average. This is another area where Australia fares slightly better, as 20% of our kids are low performers, while 15% are high performers.
However, as you can see in the infographic above, the likes of China, Belgium, and Canada are well ahead of Australia in teaching their youth about financial matters.
ASIC Deputy Peter Kell addressed this point, saying that while Australia scored above the global average among developed countries, “there is more to be done in Australia to build financial literacy and capability at all levels of education”.
So what is being done in Australia to improve financial literacy?
The future of financial literacy in Australia
The results of this report show that 20% of Australian students can’t understand basic financial concepts such as the value of a good bank account or sticking to a budget.
Basic financial literacy is an essential life skill, and this report indicates that despite performing decently compared to other leading countries, many Australian students are failing to attain a baseline level of financial proficiency.
The OECD has identified three major policy considerations that governments need to address for the sake of their children’s financial and economic futures:
- Parents have traditionally had a major role in transmitting financial skills to their children, and those who talk to their parents about money tend to have higher financial literacy. The OECD recommends an approach that both encourages parents and makes it easier for parents to discuss financial matters with their children.
- A solid foundation in mathematics and reading is important, but not essential to navigating the financial environment. Top performing countries such as Belgium and Canada perform better in financial literacy than in maths and reading, so the logical solution here is to promote the teaching of financial matters in schools from an early age. In Australia, this is implemented through what is known as school banking.
- Young people need a solid understanding of digital technologies and the risks associated with them, particularly when it comes to recognising risk, frauds, and scams.
Since the 2007 global financial crisis, the Australian government has invested more than $10 million in various policies, such as Helping our Children Understand Finance. Further initiatives by education bodies and private companies have followed, such as the Commonwealth Bank’s introduction of its Start Smart Program. This program engages children through fun, free workshops about making smart decisions with their money.
Based on the results of the OECD’s report, however, it seems that more investment may be necessary in order to curb the downward trend in young Australian’s financial ability. Under the 2017 Federal Budget, the Australian Securities and Investments Commission (ASIC) will be given a further $16 million to broaden its financial literacy programs.
Source: MoneySmartTeachingAU ASIC
For more information about what to look for in a child’s bank account, you can come to Canstar. Or you can compare your options on our website with our report for the Junior Banking and Youth Banking Awards, by clicking the link below.
Any hypothetical examples provided above are not based on actual products. Borrowers should make their own calculations based on specific product features and their own circumstances.